HoopsHype explains: What is the NBA mid-level exception?

The NBA has what’s called a soft salary cap, meaning the league limits salaries in order to keep competitive balance artificially – since certain owners with deeper pockets would pay LeBron James $100 million per year to play on their team. What makes the salary cap soft is that the limit teams can spend to isn’t imposed by a fixed dollar amount, but by rules and restrictions that make spending money difficult.

By having a soft cap, the NBA has tried to incentivize players to stay with their team and give those teams the ability to re-sign those players by going over the cap. Once teams are over the cap, they are given certain (and limited) tools to improve their teams. These tools exist to help teams add more talent, but quite frankly, the main reason is to make the process of team-building more interesting.

One of those interesting tools is the mid-level exception.

Actually, there are three different mid-level exceptions, since the NBA doesn’t want to make the rules too simple.

Until recently, the mid-level exception has been pretty close to the average salary in the NBA, and has allowed contenders to add that one extra piece they’ve needed in the title chase. Examples here range from Shane Battier signing with the Heat back in 2011 to Shaun Livingston’s contract currently with the Warriors.

Non-Taxpayer Mid-Level Exception ($5.628 million in 2016-17):

The largest mid-level exception available to teams is the non-taxpayer mid-level exception, which is available to teams that are under the luxury tax apron, which is always $4 million above the luxury tax line. Players can be signed up to four years with 4.5 percent annual raises each season.

Taxpayer Mid-Level Exception ($3.477 million in 2016-17):

The taxpayer mid-level exception is available to teams above the luxury tax apron, and it works similarly with 4.5 percent raises each season after a fixed starting salary, but one major difference to the non-taxpayer version is that players can only be signed up to three years.

Room Mid-Level Exception ($2.898 million in 2016-17):

“Room” is the lowest of the three mid-level exceptions and available to teams that are under the cap enough to lose the more valuable exceptions. The room exception is also shorter in terms of maximum years, and players can only be signed up to two years.

The question that arises is: Why do you need the room exception if you are under the cap? Isn’t a player signed under the cap just a regular salary?

The room exception becomes relevant because other exceptions (such as the taxpayer mid-level- or bi-annual exception which is available every other year) are counted against the cap until the team renounces them – i.e. tells the league they don’t want to use them. This seems weird but actually makes sense because the way to go over the cap is by using these exceptions, so they have to be priced in when making cap decisions.

The simplified explanation: A team is very close to the cap but not over it and can’t use their exceptions. The room exception is bigger than the difference between the salary cap and the team’s current salary – hence, the team gets an exception to go over the cap.

Under the 2011 CBA, the mid-level hasn’t been tied to the salary cap but has been a fixed starting salary. It’s also possible for teams to split their exceptions among multiple players. For example, under a mid-level exception of $5 million, Player A can receive $3 million and another Player B can receive $2 million. Note that the entire exception doesn’t need to be used.

Teams can use the mid-level exception every season, but if they’ve used one of the three variations, they can’t use other ones the same year.

An interesting thing to note is that the upcoming CBA, which the NBA and the players association are close to signing, will likely tie the mid-level exception to the cap as a percentage instead of a fixed number. With the skyrocketing salary cap, the mid-level exception has become almost useless from its original intention, since the average player isn’t earning a salary that’s hovering around $5-6 million, but 30 percent higher.

A few years ago, every contender would have been going after someone like Courtney Lee with their mid-level exception, but this summer Lee received a four-year $48 million contract from the Knicks. Had the mid-level exception been tied to the cap, more competitive offers in the $35 million range could have been made.